Highest and Best Use Analysis
in Hawaiʻi, Before Capital
Is Committed
The most expensive mistake in development is building the wrong thing on the right site. The Benavente Group's highest and best use analysis and feasibility studies tell developers, landowners and lenders in Hawaiʻi what a site should become, and whether that project will pencil, before design fees and land deposits are spent.
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Deciding What the
Plans Should Be
This is consulting work at the decision point. Instead of certifying a project's value after the plans are drawn, we help decide what the plans should be. Our MAI-designated appraisers and market analysts bring the same discipline to a feasibility question that they bring to a lender's appraisal. Every assumption is stated, every input is sourced, and the conclusion is one a lender, board or investment committee can rely on.
For the Decision Point,
Not After It
| Client | How we help |
|---|---|
| 01Developers | How we helpChoosing between product types, densities and phasing. |
| 02Landowners and trusts | How we helpDeciding whether to sell, ground lease, joint venture or hold. |
| 03Lenders and investors | How we helpTesting a sponsor's plan before funding. |
| 04Government and nonprofit landowners | How we helpEvaluating public land for housing or mixed-use. |
Decisions we help with
- Whether to buy a site and at what price
- Whether to build rental or for-sale housing
- How many units or how much floor area the market and zoning will support
- Whether to renovate an older building or redevelop the site
- Whether to ground lease land or sell it
- How a public parcel is best used
What Should Be Built,
Tested Four Ways
Highest and best use is the use that is:
- 01
Legally permissible
Allowed under zoning, State land use districts, special management area rules and covenants.
- 02
Physically possible
Suited to the site's size, shape, slope, soils, access and utilities.
- 03
Financially feasible
Producing enough value or income to justify the cost to develop.
- 04
Maximally productive
The feasible use that produces the highest value.
The tests are applied in order, and each narrows the field. A use that zoning prohibits is excluded however profitable it might be. A use that is legal but physically impractical on the site is excluded next. Among the uses that remain, we test which are financially feasible. Then we identify the one that produces the highest land value. That use is the highest and best use, and it becomes the foundation for valuation and for the development decision.
Market and Financial Feasibility Analysis:
Does the Project Pencil?
A project is financially feasible when its completed value, or the income it produces, covers all costs of development plus the return a developer or investor requires. To test that, we model:
- 01
Revenue
Achievable rents or sale prices, absorption pace and stabilized occupancy, drawn from market evidence.
- 02
Development costs
Hard costs, site work, soft costs, financing, impact fees and contingency, using Hawaiʻi cost data.
- 03
Timeline
Entitlement, design, construction and lease-up periods, each of which carries cost.
- 04
Return
Developer profit or internal rate of return expectations, set against market benchmarks.
The result shows whether the project works, how sensitive it is to changes in rent, cost or timing, and what the land can support. Where demand evidence is needed first, we draw on a Hawaiʻi commercial real estate market study for the same site.
Residual
Land Value
One of the most useful outputs is the residual land value: the amount a developer can afford to pay for the land after accounting for all other costs and a reasonable profit. For landowners, it shows what a site is worth to a buyer intending to build. For developers, it sets the ceiling on what to offer.
Comparing residual land value across alternative uses is often the clearest way to identify the highest and best use.
Completed project value
Or the income the project produces, capitalized
All other development costs
Hard, soft, financing, fees and contingency
A reasonable developer profit
The return the market requires
Residual land value
Advisory Work That
Shapes the Project
| Deliverable | What it tells you |
|---|---|
| Highest and best use study | What it tells youThe use that maximizes value for the site |
| Financial feasibility study | What it tells youWhether projected value or income covers development cost and required return |
| Residual land value | What it tells youWhat a developer can afford to pay for the land |
| Development scenario comparison | What it tells youSide-by-side returns for alternative product types or densities |
| Entitlement risk review | What it tells youHow zoning and approvals affect timing, cost and value |
Keep, Renovate, Convert
or Redevelop
For a site with an existing building, highest and best use is analyzed twice.
As vacant
We ask what the ideal use of the land would be if it were empty.
As improved
We ask whether the existing building should be kept as is, renovated, converted to another use or demolished.
When the land as vacant is worth more than the property as improved, the building is a candidate for redevelopment. This analysis matters for owners of aging commercial buildings in Honolulu's urban core, where zoning may allow more density than existing structures use.
Entitlements and Cost
Decide the Answer
In Hawaiʻi, what is legally permissible often decides the outcome before the numbers do. State land use districts, county zoning, special management areas and long approval timelines all affect what can be built and when. Construction costs on the islands, and higher still on neighbor islands and in the Pacific, make the feasibility test far less forgiving than on the mainland.
Entitlement risk
The path from land use designation to building permit can be long and uncertain. A site may need a State land use boundary change, a county zoning change, a special management area permit or environmental review, each adding time and cost. Projects that look feasible on an assumption of quick approvals can fail when realistic timelines are used. We build entitlement timing into the analysis and, where it is uncertain, show the result under several scenarios. Our entitlement risk analysis guide covers the issue in more depth.
Leasehold and land tenure
Much of Hawaiʻi's developable land is held by large landowners and trusts who ground lease rather than sell. A project on leased land faces ground rent and a finite term that a fee simple project does not. We test feasibility under the actual tenure, not an assumed one.
From Site to
Recommendation
- 01
Site and entitlements
Inspection, zoning and land use review, and physical constraints. - 02
Market inputs
Rents, prices, absorption and costs for each candidate use. - 03
Scenario testing
Financial modeling of alternatives against the four tests. - 04
Recommendation
A clear conclusion on use, density and land value, with the assumptions shown.
What You
Receive
- A clear recommendation on the highest and best use, with the reasoning behind it
- A summary of zoning, land use designations and entitlement requirements
- Physical site analysis, including size, shape, topography, access and utilities
- Market inputs for each candidate use, including rents, prices and absorption
- Development cost estimates and a financial model for each scenario
- Residual land value and sensitivity analysis
- Assumptions, limitations and data sources
What Our Clients Say
As part of this assignment, TBG was able to uncover material use restrictions associated with this property that were appropriately treated in the valuation. As a result, our company was able to appropriately respond to the ground lessor's ground lease renegotiation offer.
Frequently Asked
Questions
- No. An appraisal concludes a value. A feasibility study tests whether a specific project makes financial sense. Highest and best use analysis sits inside every appraisal, but can also be commissioned on its own.
- Before land acquisition or design commitments, when changing course is still inexpensive. Our guide to feasibility studies in real estate explains the timing.
- Yes. We test whether the current use, a renovation, a conversion or redevelopment produces the highest value.
- Our work is prepared to professional standards by MAI-designated appraisers, the credential lenders look for.
- Yes. We analyze sites across Hawaiʻi and in Guam, Saipan and the Marshall Islands, where construction costs and logistics make feasibility testing especially important.
- Yes. We can compare candidate sites on the same basis, testing each against the uses you're considering.
- Every appraisal includes a highest and best use conclusion, because value depends on the use a buyer would make of the property. A standalone analysis goes further, modeling alternatives in detail. Our highest and best use guide explains the concept.
- Then the analysis has done its job. Knowing a project does not work before land is bought or design fees are spent is one of the most valuable outcomes.
Discuss Your
Site With Us
Tell us about the site, the decision you are facing and your timeline. We will respond promptly with scope, approach and next steps.
Prefer to talk? Call (808) 784-4320